The English High Court provides much needed guidance on the effectiveness of sanction exclusion language, following the USA’s withdrawal from the JCPOA

After a tumultuous year in the Iranian sanctions landscape, much needed guidance is starting to trickle down through the English courts as to the scope and application of the US secondary sanctions and the EU Blocking Regulation regimes. On 12 October 2018, the English High Court handed down judgment in Mamancochet Mining Ltd v Aegis Managing Agency Ltd [2018] EWHC 2643 (Comm), in which Teare J was asked to consider contractual sanctions exclusion clause wording in the context of a marine cargo insurance policy.

The Claimants sought to claim under the policy for the theft of steel billets from bonded storage in Iran. The Defendant underwriters resisted payment on the basis of the policy wording, which provided inter alia that no cover would be provided if it exposed the insurer to any US or EU sanctions. The case was heard on an expedited basis in light of the fact that the relevant US sanctions will be re-imposed on 4 November 2018.

The Claimants succeeded. The court held that it was insufficient for the insurers to allege there was a risk that the US / EU authorities might conclude that payment was prohibited and so impose sanctions. The insurers were required to go further and establish that (on the balance of probabilities) the payment would be prohibited under either EU or US sanctions regimes and would, therefore, expose them to a sanction. This judgment may well see the insurance market re-visit its sanctions exclusion language, though the position will once again evolve come 4 November.

Of equal, if not greater, interest however are the judge’s obiter comments on the interaction between a contractual exclusion clause and the EU Blocking Regulation. Though non-binding, the judge appeared to be of the view that insurers may be able to suspend payments to their assured that would otherwise contravene US secondary sanctions, without being in breach of the EU Blocking Regulation. The insurers’ answer to allegations of a breach of the Blocking Regulation would be that the decision not to pay was predicated on a contractual entitlement rather than in compliance with a third country’s prohibition. The judge was not required to reach a firm conclusion on this because, on the facts, no secondary sanctions were engaged (a finding that would have been different post 4 November). No doubt this important point will be developed in subsequent cases.